Why government cash won’t create jobs or make Maple Leaf Foods a global player

There was a glimmer of good news for Ontario’s manufacturing sector amid all the recent doom and gloom over General Motors Co.’s move to close its Oshawa auto assembly plant.

On the day of the GM announcement, Maple Leaf Foods Inc. unveiled plans for a “world-class,” $660-million chicken-processing plant in London, Ont.

The massive complex will employ 1,450 people when it opens in 2021, helping to ease the economic impact of the job losses in Oshawa.

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Eager to be part of this good news, the federal and provincial governments are contributing tens of million of dollars to the project – $28-million from Ottawa and $34.5-million from Ontario.

The project fits neatly into Ottawa’s economic mantra of encouraging middle-class jobs, innovation and competitiveness. Innovation Minister Navdeep Bains hit on all three of these themes, saying at the announcement that the federal investment would “help bring new innovations to Canada’s food-processing sector, keep Canada competitive in the global market and create new middle-class jobs in Ontario.”

That sentiment was echoed by Agriculture and Agri-Food Minister Lawrence MacAulay, who said the Maple Leaf Foods plant will position Canada as a “globally competitive player in the food-processing sector.”

Unfortunately, this narrative has a few holes. The Maple Leaf Foods plant will actually result in a net loss of about 300 jobs because the company plans to close three aging Ontario factories as it shifts production to London. So scratch job creation off the list of accomplishments, except perhaps during construction.

And while the new plant might well be world-class, the company says none of the chicken it will process there is destined for export. Maple Leaf Foods spokeswoman Linda Smith said the plant is “designed to service the Canadian market,” just like the three factories it will replace.

That is because when it comes to poultry, Maple Leaf Foods does business in a bit of an economic bubble. Like the dairy sector, Canada’s $2.5-billion poultry industry operates within the supply management system. Provincial marketing boards set prices paid to chicken farmers at stable, high levels, and strictly control farm output. Foreign imports are restricted through a combination of quotas and steep tariffs.

Building a plant in the United States is not a viable option for Maple Leaf Foods, because the industry is not set up to compete in global markets. Most of the chicken consumed in Canada is produced here. And only 14 per cent of domestic poultry production was exported in 2017.

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The new plant is obviously great for the company and its shareholders. The facility will produce significant efficiencies for Maple Leaf Foods, the country’s largest chicken processor. The plant will boost its processing capacity by a third, delivering more than $100-million a year in extra profits.

It is less clear that the project meets the loftier goals set out by Mr. Bains and other federal government officials. And there is no guarantee consumers will see the benefits of these efficiencies through lower prices at the grocery store.

Most of the federal contribution comes from Ottawa’s $1.3-billion Strategic Innovation Fund. According to the program’s website, the fund’s goal is to “strengthen and expand the role of Canadian firms in regional and global supply chains, support economic strategies, and attract investment that creates new, good, well-paying jobs.”

Ottawa is hypersensitive to the investment challenges facing Canadian businesses. The slump in oil prices, stalled pipeline projects, U.S. protectionism and the loss of market share in key export markets are all weighing on business investment.

Spending by companies on machinery and equipment fell nearly 5 per cent between 2012 and 2017, according to a recent report by the Vancouver-based Fraser Institute. Spending on non-residential structures and intellectual property declined by double-digits over the same period.

Ottawa is right that the Maple Leaf Foods plant announcement helps counter the notion that businesses are not investing in Canada. Slaughtering chickens may not be quite as high up on the manufacturing evolutionary scale as making cars, as GM does. But a new plant is a new plant.

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The larger problem for the federal government is that its investment in Maple Leaf Foods will not do what it says it will, which is help make Canada a global poultry power or create net new middle-class jobs.

And consumers are not likely to get any relief on prices at the grocery store.

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